It is profoundly unfashionable to suggest this, but it is just possible that in another ten years' time Iraq's economy will be the most successful - and its people the most prosperous - in the Middle East. Absurd? Well, Iraq was pretty prosperous 25 years ago. Its GDP at the end of the 1970s was about $200 billion in today's dollars. Its GDP per head was lower than that of Saudi Arabia and the tiny Gulf states but it had a much better balanced economy in the sense that it was not dependent just on oil.

It is profoundly unfashionable to suggest this, but it is just possible that in another ten years' time Iraq's economy will be the most successful - and its people the most prosperous - in the Middle East. Absurd? Well, Iraq was pretty prosperous 25 years ago. Its GDP at the end of the 1970s was about $200 billion in today's dollars. Its GDP per head was lower than that of Saudi Arabia and the tiny Gulf states but it had a much better balanced economy in the sense that it was not dependent just on oil.

Now the economy is perhaps a quarter of that size. You can do a great deal of damage to an economy if you mismanage it for a quarter-century, fight a lengthy war with one neighbour and a short one with another, run up huge foreign debts, drive much of your middle-class abroad, and then suffer under a decade of UN sanctions. Then, the economic management under the past 15 months of occupation has also left a lot to be desired.

But not even Saddam Hussein could totally destroy the Iraq economy. One of the few encouraging aspects of the period of occupation is the way in which, despite everything, most human needs have been satisfied. There is a functioning market economy and this bodes well for the future, because it gives something to build on.

So what happens now? I don't think it is possible to try to predict how swiftly Iraq will move along the path of reconstruction. That depends on the pace at which a civil society is established. The new state has to have sufficient support from the Iraqi people to able to guarantee a reasonable degree of physical security, to uphold the rule of law and to support a functioning banking system that can collect savings and supply credit.

Without physical security, development cannot happen. There can be no dispute about the "must have" level of order before economic growth can take off. No one can know for many months whether this condition will be attained and maintained.

It is however possible to sketch a way forward, a way in which Iraq could set itself on a secure growth path. There are two things that have to happen reasonably swiftly, swiftly enough that is to give a sense of economic progress to the commercial people, who as always will be the key to building sustainable growth. One is debt relief, the other getting oil exports flowing.

On debt, some calculations by Jan Randolph, economist at World Markets Research Centre and formerly of the Bank of Kuwait, show how this could be done. Iraq has an external debt of some $120 billion, of which $20 billion is to governments of developed countries and international organisations, who are grouped together in the so-called Paris Club. There is another $20 billion of debt arrears. The rest is owed to the Arab neighbours.

Even on optimistic assumptions on oil revenues, the ratio of debt to export earnings would be well over 400 per cent. That is impossibly high. So there has to be a debt deal, which would start with a write-down by the Paris Club. The US and UK are on-side on this, but other debtors, particularly France and Germany, have to agree to concessions too. How much? Well, it looks as though the debt should be written down to perhaps one-third of its face value. Once a Paris Club deal is in place that would make it much easier to get concessions on other debt.

How these other lenders will respond will depend on how they see their long-term commercial interests. Some banks in Arab countries will want to maintain a business base in Iraq and will be inclined to co-operate. Others will want out. All past experience of debt write-downs (and sadly, there has been plenty of experience) suggests that providing lenders can see a reasonable chance of future economic prosperity, they will work hard to re-establish a country's credit-worthiness. That means accepting big write-downs.

That reasonable chance does depend on oil revenues. Before the recent war, in 1999-2002, Iraq was producing about 2.5 million barrels per day - similar to the UK output. This month it will be lucky to have averaged half that. The present infrastructure, assuming no sabotage but also no new investment, should produce about 3.0 million. But with investment it should be possible comfortably to produce 7 to 8 million barrels per day, which would put Iraq second only to Saudi Arabia in the world league. Put another way, Iraq could produce more than 10 per cent of the world's total oil supplies, more than the entire Asia-Pacific region put together.

That gives the new Iraqi government great power and holds out the prospect of a huge prize for the Iraqi people. The oil price in real terms was higher at the end of the 1970s, when Iraq's economy was at its peak, than it is now. But looking forward at the likely development of the supply/ demand balance over next decade, the oil price will probably be higher in real terms in the period 2005-2015 than it was in 1979-1989. It is not difficult to see oil revenues alone driving the Iraqi economy back to the size it was in 1979.

Indeed, that sort of growth could happen quite quickly. In the next two to three years any spare revenue has to go into infrastructure reconstruction. But after that, Iraq could have real choices about what to do with its natural wealth. The intriguing question then would be whether the new Iraqi authorities could manage to spread the wealth across the nation sufficiently swiftly to bolt down support for the regime.

What the country has to do is to avoid the mistakes of Saudi Arabia, which has in large measure squandered its oil revenues on prestige projects and unsustainable welfare benefits for the favoured. There has to be a sustainable economy that is not dependent on oil. That is not because the oil will soon run out: Iraq has the second or third-largest reserves, depending on how you calculate them, of any country in the world.

Rather, it is because countries need an economic balance as well as social and political balances, if they are to prosper in the long term. Single-product economies never seem to thrive in the long run, for they create too great a gap between the few insiders and the many outsiders. Fortunately Iraq has a skill-base that is unrivalled in the region and therefore is in a position to develop its other commercial activities.

In the end it comes down to a sense of will, a sense of vision, a sense of the possible. Countries often seem suddenly to make a collective decision that they will find a way of coping with internal tensions and get on with the business of becoming rich. Malaysia is a good example is a country that could have pulled apart but has chosen to pull together and is now making the leap to developed status. But it benefited from seeing the progress of its neighbours in South-east Asia, in particular Singapore. The Iraqi people have fewer regional models, although there is the obvious exception of Dubai.

Could Dubai be to Iraq what Singapore has been to Malaysia? It might seem absurd to suggest it, but it is not absurd to point to the scale of the prize.